Matters:
The company announced its 2023 annual results. In 2023, the company achieved insurance service revenue of 503.9 billion yuan, +7.5% year-on-year; realized net profit to mother of 22.773 billion yuan, -10.2% year-on-year. In terms of personal insurance, the new business value was 6.49 billion yuan, +105.4% year-on-year; the included value reached 123.965 billion yuan, +5.6% compared to the end of the previous year.
The comprehensive cost rate for property insurance was 97.6%, +0.9pct compared to the previous year. The company achieved net/total return on investment of 4.5%/3.3%, -0.6 pct/-1.3 pct year-on-year, respectively.
Commentary:
The growth rate of industrial insurance premiums remained high, and the comprehensive cost ratio reached the target set at the beginning of the year. In 2023, the company achieved revenue of 457.2 billion yuan from insurance services, +7.7% year-on-year, mainly from auto insurance, e-health insurance, and agricultural insurance, which contributed 3.3%/2.0%/1.2% respectively. The original premium growth rate (+6.3%) was between Ping An Financial Insurance (+1.4%) and Taibao Industrial Insurance (+11.4%). The original premium income accounted for 32.5% of the property insurance market share, maintaining the top position in the industry. In 2023, the company achieved underwriting profit of 11.1 billion yuan, or -22.1%; the comprehensive cost ratio reached 97.6%, +0.9pct year on year, including car insurance 96.9%. Facing extreme weather such as Du Sului and Anemone in 2023, it still achieved the goals set in early 2023, demonstrating the company's mature risk management capabilities and good profit level.
Auto insurance is growing steadily, and under pressure, COR remains at the leading level in the industry. Auto insurance achieved insurance service revenue of 282.2 billion yuan in 2023, +5.3% year on year; accounting for 61.7%, -1.4pct year on year. The comprehensive cost ratio reached 96.9%, +2.4 pct year over year, optimized 0.1 pct compared to the target set at the beginning of the year, and superior to peers (Ping An Insurance 97.7%, Sunshine Insurance 98.9%). Among them, the payout rate was +2.1 pct to 70.4% year on year, mainly affected by the clean-up of the epidemic, rising insurance rates, and natural disasters such as typhoons and torrential rains; under the influence of amortization of the costs of obtaining insurance policies under I17, the cost rate was +0.3 pct to 26.5% year over year. Furthermore, increased competition in the car insurance industry also caused the cost rate to rise to a certain extent.
The share of non-car insurance has increased, and multiple types of insurance have achieved COR optimization. In 2023, non-car insurance achieved total insurance service revenue of 175.1 billion yuan, +11.9% year on year; accounting for a total of 38.3%, +1.4pct year on year. Looking at insurance segments, iHealth Insurance/Agricultural Insurance/Corporate Financial Insurance/Liability Insurance were +23.8%/+10.6%/+5.1%/+3.2%, respectively. Multiple insurance types achieved COR optimization, with agricultural insurance/health insurance/liability insurance/corporate financial insurance -0.7pct/-2.8pct/-2.1pct/-0.4pct to 94.0%/97.7%/107.0%/103.8% year-on-year.
NBV achieved ultra-high growth, and team quality increased significantly. The total NBV of the personal insurance business sector reached 6.49 billion yuan in 2023, +105.4% year-on-year.
1) Human Insurance Life Insurance: Achieved NBV of 36.64 billion yuan in 2023, +69.6% year over year; new business value ratio +1.6 pct year over year; included value +2.0% year over year; original premium income of 10.63 billion yuan, +8.6% year over year. Among them, the volume of new orders reached 48.32 billion yuan, +11.1% year over year, +37.1% year over year, and batch transactions -7.7%, up in terms.
In terms of insurance structure, the share of original premiums for ordinary life insurance increased markedly, from +10.7 pct to 42.9% year on year, which is expected to be driven by product policy adjustments; dividend insurance's share of original premiums was -9.3 pct to 40.3% year over year; affected by market demand, the share of original health insurance premiums also declined slightly, -1.4 pct to 15.6% year over year.
Looking at the channel structure, life insurance, represented by increased lifetime life, drove an increase in the share of banking insurance channels. In 2023, the share of banking insurance was +1.3 pct to 48.8% compared to the same period last year, and the share of individual insurance was -1.5 pct to 47.7%. The growth rate of NBV in the banking insurance channel was impressive, +241.6% year over year to 1.0 billion yuan; the value ratio of new business was +2.1 pct year over year. Human Insurance Life Insurance continues to transform agents, with 88,000 “Big Insurance” marketers, -8.8% compared to the end of the previous year; the average monthly effective workforce was 21,000, -6.7% compared to the end of the previous year. The quality of the team improved markedly. Each person paid a new monthly premium of 8770.97 yuan per month, +119.5% over the same period last year. The quality of the insurance policy continued to improve. The 13-month premium continuation rate was +9.5pct to 92.2% year over year, and the 25-month premium continuation rate was +7.2pct to 80.3% year over year.
2) Human health: Achieved NBV of 2,826 billion yuan in 2023, +182.9%; new business value ratio +5pct to 28.3% year over year; included value +25.8% year over year; original premium income of 45.21 billion yuan, +10.2% year over year. Among them, the volume of new orders reached 12.78 billion yuan, +19.9% year over year, +34.1% year over year, barge transaction ratio +13.5%, and futures rose.
In terms of insurance structure, long-term care insurance performed well, accounting for +236.9%, accounting for +5.5pct to 8.1%; the share of both medical insurance/dividend insurance and sickness insurance declined slightly, to 56.6%/22.6%/11.3%, respectively.
Looking at the channel structure, individual insurance accounted for -3.6 pct to 41.5% year over year; group insurance accounted for -1.1 pct to 32.7% year over year; bank insurance accounted for +4.8pct to 25.8% year over year. Among them, banking insurance channel futures grew significantly in the first year, +230.9% year over year.
The equity market fluctuates, and the investment side is under pressure. As of the end of the reporting period, the Group's investment asset balance reached $1.43 trillion, +11.4% year-on-year. In 2023, in the face of a capital market environment where equity market fluctuations increased and long-term interest rates continued to decline, pressure on the investment side increased, and the company achieved net/total return on investment of 4.5%/3.3%, -0.6 pct/-1.3 pct, respectively. Among them, the return on investment in fixed income assets was 4.4%, +0.1pct year on year; the return on investment in OCI stocks reached 6.4%. In terms of asset allocation, fixed income accounted for +0.3 pct to 64.5% year on year, of which total bonds accounted for 43.6%, -2.2 pct year on year, non-standard accounted for 15.1%, and -0.1 pct year on year; equity investment accounted for +1.4pct to 21.5% year on year, of which stocks and funds together accounted for 11.4%, -2.3 pct year on year. In terms of accounting measurement methods, FVTPL/FVOCI in stock assets was 64.8%/35.2%. In order to smooth out the impact of equity investment on statements, OCI stock holdings were +110.4% compared to the same period last year.
Assuming a reduction will help steady development. In 2023, the company adjusted its implied value assumptions. Among them, the risk discount rate assumption was lowered from 10% to 9%, and the return on investment was adjusted from 4.5% to 4.5%/4.75% for traditional insurance/dividend insurance and universal insurance, respectively. We believe that in a context where long-term interest rates continue to decline and assets are scarce, a reduction in the company's return on investment will help match assets and liabilities more carefully. The return on investment assumption distinguishes the extent of the reduction according to the type of insurance type, reflecting the company's ability to manage the company's capital burden. Furthermore, the risk discount rate is more prudent than that of peers (safety, sunshine 9.5%), which helps the company to develop steadily and consolidate the reporting base.
Investment advice: In 2023, the company's production and life span are flying, NBV has soared year over year, and COR has exceeded expectations and achieved the target set at the beginning of the year. Looking ahead to 2024, we believe that property insurance in the company's main business segment will maintain its leading advantage. The risk reduction management service system will help the company manage COR and support the upward trend in ROE. Currently, stricter regulations and last year's high base may put some pressure on life insurance, but as demand for medical treatment and old-age care continues to be released and the company is deeply involved in the field of health management, People's Health Insurance may continue to perform well. Considering the impact of the switch between the old and new guidelines, we lowered the 2024-2026 EPS forecast value to 0.59/0.66/0.73 yuan (the original value of 2024-2025E was 0.82/0.90 yuan). Adjust the 2024 PB target value for property insurance business to 1.1 x, other business to 1x, and PEV target value for personal insurance business to 0.5x, corresponding to the 2024 target price of 7.1 yuan. Maintain a “Recommended” rating.
Risk warning: regulatory changes, reforms falling short of expectations, long-term interest rates continue to decline